Where Could ITC's Share Price be in the Next One Year?

About ITC

ITC has a diversified presence in FMCG, packaging, paperboards & specialty papers, tobacco and agri-business.

In the branded packaged foods segment key brands of ITC include Aashirvaad (staples like atta and spices), Sunfeast (biscuits), Bingo! (snacks), YiPPee! (noodles and pasta), Candyman and mint-o (confectionery), Kitchens of India (ready-to-eat), B Natural (beverages), Fabelle (chocolates), Sunbean (coffee), and ITC Master Chef (frozen foods).

In personal care, it has brands like Fiama (shower gels and soaps), Vivel (soaps and body wash), Savlon (antiseptics and soaps) etc. Stationery features classmate and papercraft.

The company is extremely diverse with many more brands across key segments, including cigarettes.

Positives for Investors

#1 Fundamentals

ITC is among the fundamentally strongest companies in the country. Over more than a century, the company has successfully built a strong presence across multiple sectors.

The company has remained debt free for many years. It has strong cash flows driven by many businesses that are the leaders in their respective sectors.

Over the past 5 years, the revenue of ITC has grown at a CAGR of 7.8% and the net profit has grown at a CAGR of 5.1%.

It's return ratios are strong. The return on equity (ROE) and return on capital employed (ROCE) have averaged 26.5% and 35.4% over the past 5 years.

Over the last decade, ITC has successfully created an array of strong brands which are either #1 or #2. These brands are market leaders in their respective categories.

#2 Hotel Business Demerger

In a landmark decision ITC has separated its hotels business into a new entity - ITC Hotels Limited. It was a long pending demand of shareholders. This strategic move was one of the most significant corporate restructurings in recent Indian business history.

This move has allowed the management to operate with renewed focus on the FMCG, tobacco, and hotel businesses separately.

To provide a strong foundation for the demerged hotel entity, ITC transferred Rs 15 billion (bn) in cash and cash equivalents. This significant financial support will fuel growth and provide a safety net.

#3 Dividends

ITC is famous for being a high dividend stock. From 1994, the company has rewarded investors with dividends without missing a single year in between.

This is the one thing that makes ITC stand out. Over the years, the management has laid out a flexible capital allocation policy with dividend payouts being stepped up to about 80-85% of its post-tax profits.

In FY25, ITC paid out Rs 14.35 per share as dividends up from Rs 13.75 the previous year.

ITC's dividend payout ratio in FY25 was 89.6%. The company has come a long way in increasing its payout. Between 2003 and 2009, the company had a modest payout ratio ranging between 30-40%.

The company's 5-year average dividend payout ratio is 92.8% and its current dividend yield is 4.4%.

What are Investors' Concerns?

#1 Tax Hike of Cigarettes

The big tax hike on cigarettes by the government will hurt either the company's margins or volumes or both. It's also likely to have an impact on the numbers of FY27 and beyond.

The market believes the company might will have to compensate for this by outperforming in the FMCG and paperboards business.

However, the recent performance of these businesses have not been exceptional.

#2 High Competition

In FMCG, ITC faces tough competition from big rivals (HUL, Nestle, Britannia, etc.), which can limit growth and margins.

In Q3 FY26, ITC reported revenues of Rs 217,066 m, compared to Rs 203,500 m in the same period last year, an increase of 6.7% YoY.

The consolidated net profits rose 2.3% YoY to Rs 49,161 m in Q3 FY26 compared to Rs 48,056 m in the same period last year.

Financial Highlights of ITC

Conclusion

The overhang of the cigarette business will be felt by investors until other business divisions compensates for the same.

Currently, the stock is under pressure due to a combination of concerns surrounding taxes, sales growth, margin pressure, and high competition.

However, the long term fundamentals of the business are strong.

Thus, while the stock price is likely to face the effects of negative investor sentiment in the short term, the long term prospects of the business are an entirely different matter.

This is the dichotomy that investors should keep in mind in the case of ITC.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

To know more, check out ITC company fact sheet and quarterly results.

For a sector overview, read our FMCG sector report.

You can also compare ITC with its peers:

ITC vs VST Industries

ITC vs Godfrey Philips

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy Investing.